1

S EP T EM B ER 2010

t r av e l i n f r a s t r u c t u r e l o g i s t i c s p r a c t i c e

Transforming India’s logistics

infrastructure

To get the most from massive investments, India must adopt a

coordinated approach that aligns the development of each transport
mode with the country’s needs.

Rajat Gupta, Hemang Mehta, and Thomas Netzer

waterways
roads

railways
 2

Logistics infrastructure is a critical enabler of India’s agenda for economic development

and urbanization. Recognizing its pivotal role, the Indian government will have tripled annual
spending on logistics infrastructure over the past seven years, from about $10 billion in
2003 to $30 billion in 2010. Despite this increase, the country’s network of roads, rail, and
waterways will be insufficient to accommodate a threefold increase in freight movement
over the coming decade. This shortfall in logistics infrastructure will put India’s growth at
risk, concludes a new McKinsey report, Building India: Transforming the nation’s logistics
infrastructure.

Since a large part of the logistics network that India needs has yet to be built, the country
has a chance to add infrastructure optimally to meet the growing demand. The report finds
that to achieve this goal, India must pursue an integrated and coordinated approach that
not only closely aligns the development of each mode—railways, roads, and waterways—with
the country’s needs but also makes better use of existing assets. This will require increasing
the railways’ share of logistics infrastructure investments from about 40 percent currently
to 50 percent. Building a logistics infrastructure capable of handling rising freight traffic more
efficiently presents opportunities for user industries and for infrastructure developers and
construction companies, among others, the report finds.

In particular, India must expand its use of rail and realize the potential of its waterways. Given
Web 2010
current trends, the share of India’s freight transported by rail would decline to 25 percent,
India infrastructure
from the current 36 percent. By contrast, rail accounts for almost 50 percent of freight
Exhibit 1 of 1
movement in China and the United States. The report suggests an approach where India could
increase rail’s share of its freight to 46 percent by 2020 (exhibit).

Exhibit India should increase the use of rail for freight to ensure
a much more balanced and economical mix of
transportation modes.

% Air 1 1 1
Water 6 5 6
25
Rail 36
46

69
Road 57
47

Current From current . . . to balanced

trajectory . . . modal mix

2007 2020
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Related thinking If current trends prevail, inefficiencies associated with poor logistics infrastructure will
increase from $45 billion today to $140 billion in 2020. However, a well-planned infrastructure
“Upgrading India’s energy
program could help India cut this waste by half and transportation fuel requirements by 15 to
and transportation
20 percent.
networks: An interview with
a leading infrastructure
builder” Read an executive summary or download the full report outlining India’s logistics
infrastructure challenge at the McKinsey & Company Web site.
“Putting a roof over
India: An interview with
the country’s biggest Rajat Gupta and Thomas Netzer are directors in McKinsey’s Mumbai office, where Hemang Mehta is
developer” a consultant. Copyright © 2010 McKinsey & Company. All rights reserved.

“Clearing the way for robust

growth: An interview with
India’s chief economic
planner”

“India’s economic agenda:

An interview with
Manmohan Singh”

“India’s high-stakes urban

challenge”